Re: Dow 36,000

John Clark (
Mon, 25 Oct 1999 11:26:26 -0400

Robin Hanson <> Wrote:

>I find the idea that "buy low, sell high" might work
> plausible enough to be worth testing.

I'm so confident that's true I haven't even bothered to test it, just follow that commandment and you'll get rich.

> If you were right about Shiller being very selective, then it would
> be easy for you and others to publish your own study showing that
> your favorite measure of P/E does not predict your favorite measure
> of long-term returns. Know of such a study?

No, but I'm not big on reading studies of that sort. I do know that for the last 8 to 10 years low P/E "value" stocks have done less well than the average stock and much less well than high P/E "growth" stocks. I think the PE ratio is very important information because it tells you how expensive a stock is, but you need to know lots of other stuff to know what it is you're buying, to figure out if it's worth the price or not. Asking "Is buying a high PE stock a good idea?" is like asking "Is buying a $1000 object a good idea?".

      >>It has been nearly 4 years since the prediction, not a trivial fraction
      >>of a human lifetime, and in that time the market has exploded upward.

> I agree that is an objection, though I don't think it especially
> fundamental or devastating.

For me the value of any economic idea is its usefulness, a failed prediction is not very useful. OK, in the long term it's possible he could still be right, but in the long term we're all dead.

John K Clark